Guest Editorial
Why milk and other dairy products are not like gasoline

Connie Tipton is president and CEO of the International Dairy Foods Association. She contributes this column exclusively for Cheese Market News®.

When talking price per gallon, two products spring to mind these days: milk and gasoline. And people are quick to draw the comparison. A story in the Atlanta Journal-Constitution last week entitled “Milk Builds Bones, Breaks Wallets,” begins, “Sticker shock at the gas pump is almost routine. But at the dairy case?”

The comparison works because gas and milk both seem vital to day-to-day life. But some in the industry push it too far, noting that people haven’t stopped filling their tanks in the face of soaring gas prices, so they will suffer high milk prices and other dairy product prices, as well.

Unfortunately, history doesn’t support this theory. As prices soared in 2004, milk sales dropped significantly. We’ve celebrated two straight years of fluid milk sales increases, in part the result of an enormous industry investment in promotion programs. We could see that momentum come to a screeching halt this year.

At the gas pump people have very little choice: We have to fill the tank and get to work or elsewhere. For most people, switching to public transportation or walking isn’t an easy alternative. But we have many more choices when it comes to buying milk. We can drink fortified juices or even soft drinks and water — and we can buy smaller packages of milk. You can cut down on milk and still get to work every day.

And milk is just one part of the story, of course; all dairy products could be affected by the current run-up in farm prices. And we all need to understand what this can mean for consumption — not just this year but in the longer term. How well are our producers, manufacturers and marketers equipped to deal with these dramatic shifts in the market?

We have a number of customers to think about — among them: the mother of four buying milk at the supermarket, the pizza manufacturer buying cheese, the frozen food manufacturer buying dairy ingredients for prepared foods, and the domestic and overseas users of dairy proteins like whey and lactose products. In each case, there are other choices besides dairy. And in each case, if we lose customers, we may not get them back.

I’m reminded of the battle between sugar and high fructose corn syrup (HFCS). The taste is not the same — some would argue sugar tastes better. But with federal sugar policies keeping sugar prices high, soft drink manufacturers a few years ago made the enormous leap to the lower-priced HFCS and haven’t looked back.

With cheese and other dairy ingredients, we face a real risk of losing markets and not getting them back. Our products taste better. But we need to stay price competitive, and we need to do a better job of managing price volatility.

There’s no question that prices have become more volatile for the dairy industry, and the markets will be more dynamic for the foreseeable future. We need more tools to manage that volatility. One obvious improvement is for Congress to make the recently expired dairy forward contracting pilot program permanent. Manufacturers and producers were able to test drive forward contracting and found it improved their ability to manage price volatility. Programs like this give manufacturers the predictability they need on input costs — and that makes a huge difference in working with domestic and international customers.

Unfortunately, the heated Farm Bill rhetoric inside Washington is misconstruing forward contracting, which could result in a failure to adopt this valuable program. This in essence puts the government between willing plants and milk producers who want to stabilize milk prices. We need to let Congress know how well the program worked for producers and processors, and work together for inclusion of forward contracting in the Farm Bill.

I also believe that untangling the labyrinth of pricing regulations will help us manage volatility, but our system is so complex with government regulation that many just throw their hands up. We need a blue ribbon federal milk marketing order commission, with balanced representation across the industry, to map out our way forward. The Farm Bill is our opportunity to get Congress to work with us on this.

When it comes to dealing with price volatility and building a strong dairy industry, we don’t have to settle for the status quo. We can better arm ourselves for market conditions, and for servicing our customers. We can be less reactive to the wild swings, and more prepared. But it requires the action of this industry to get involved and make sure the policies in Washington reflect the good of the entire industry.

Look at the Farm Bill proposals on the table — and look at the current year and what it means for your business — and get involved to make this industry even more responsive to our dairy customers.

Note: IDFA’s Farm Bill proposals — including forward contracting — can be found at www.healthydairyindustry.org.

CMN

The views expressed by CMN’s guest columnists are their own opinions and do not necessarily reflect those of Cheese Market News®.